Davenport, Leibold, Voelpel: Industry examples of a shifted locus of innovation

Many industries – including copiers, computers, disk drives, semiconductors, telecommunications equipment, pharmaceuticals, biotechnology, and even military weapons and communications systems – are currently transitioning from closed to open innovation. For such businesses, a number of critically important innovations have emerged from seemingly unlikely sources. Indeed, the locus of innovation in these industries has migrated beyond the confines of the central R&D laboratories of the largest companies and is now situated among various startups, universities, research consortia, and other outside organizations. This trend goes well beyond high technology – other industries such as automotive, health care, banking, insurance, and consumer packaged goods have also been leaning toward open innovation.

Consider Procter & Gamble, the consumer-product giant with a long and proud tradition of in-house science behind its many leading brands. P&G has recently changed its approach to innovation, extending its internal R&D to the outside world through the slogan “Connect & Develop.” The company has created the position of director of external innovation and has set a goal of sourcing 50% of its innovations from outside the company in five years, up from an estimated 10% this year. This approach is a long way from the “not invented here,” or NIH, syndrome that afflicts many large, successful industrial organizations. Recently, P&G scored a huge success with SpinBrush, an electric toothbrush that runs on batteries and sells for $5. The idea for the product, which has quickly become the best-selling toothbrush in the United States, came not from P&G’s labs but from four entrepreneurs in Cleveland.

P&G also tries to move its own innovations outside. Recently, the company instituted a policy stating that any idea that originates in its labs will be offered to outside firms, even direct competitors, if an internal business does not use the idea within three years. The goal is to prevent promising projects from losing momentum and becoming stuck inside the organization.

At the other extreme, some industries have been open innovators for some time now. Consider Hollywood, which for decades has innovated through a network of partnerships and alliances between production studios, directors, talent agencies, actors, scriptwriters, independent producers, and specialized subcontractors (such as the suppliers of special effects). The mobility of this workforce is legendary: Every waitress is a budding actress; every parking attendant has a screenplay he is working on.